| Wednesday's Headlines 1. US markets tumble more than 4% to start Q2 2. How markets respond to 20% quarterly declines 3. Correlating COVID-19 cases and market movement 4. Happy Financial Literacy Month! Markets Closed
 photo: Bruno Vincent/Getty Images
Markets Today U.S. markets opened low and stayed that way all day with the selling accelerating into the close to start the first day of the month and the second quarter. The DJIA, S&P 500, and the Nasdaq all fell 4.4% or more as investors bolted away from risk assets. The yield on the 10-year U.S. Treasury fell to a low of 0.57% before recovering a bit in the afternoon. There are reports that foreign holders of the benchmark government bond have been selling out of it for weeks, which is an ominous sign in the long-term confidence of the U.S. economy.
There is plenty to be concerned about as the number of COVID-19 cases surged past 900,000, with 200,000 of those here in the U.S. President Trump said the next few weeks will be particularly bad, and the number of fatalities in this country could eventually top 240,000.
Every sector of the S&P 500 sold off today, but the steepest declines were among the cruise companies and airlines, which have borne the brunt of the global economic shutdown for the past month.
Markets usually bounce back from quarterly drops of 20% or more, but today's rough start was not a great harbinger of an imminent recovery.
This will take time. Headlines:
 Historical Hopes for a Rebound Coming off the worst first quarter in history and facing a storm of economic uncertainty, investors have a right to wonder what the future holds. The bad news is that we just don't know how bad the news will be. We know it will get worse before it gets better, but we don't know how long it will endure.
The good news is that markets generally rebound sharply from the kinds of losses we have just seen. When you look out one-to-five years from a quarterly drawdown in the S&P 500 of 23%, on average, one year later the S&P 500 returns 25.6%, on average. Five years later, that average jumps to 91%.
It didn't happen every year, of course. 1929 and 1930 were notable exceptions. Will 2020 join those anomalies? That's the big question.  chart courtesy LPLFinancial
How Correlated Are COVID-19 Cases and the Market? I know that seems like an idiotic question given the swift decline in stocks and the onset of the coronavirus pandemic. But stocks did rally aggressively off their lows last week, and Asian markets have been gaining strength as the number of new cases and fatalities drops in that part of the world.
Ryan Detrick, Sr. strategist at LPL Financial, and his team have been modeling the performance of the S&P 500 against the daily reports of new cases around the world. The chart above shows the inverse of the S&P 500 against the number of new cases in the U.S. and the rest of the world.
As Detrick puts it, "This data is important because thus far the number of COVID-19 cases has conformed to Farr's Law of Epidemics, exhibiting a somewhat predictable bell curve normal-like distribution... these laws predict that epidemics normally follow a pattern of sharp increase, a peak, and then a decline back to a baseline. The distributions of both new COVID-19 cases and related fatalities in China and South Korea have exhibited this behavior and appear to have ridden out the initial outbreak cycle."
The U.S., on the other hand, is still coming up with new estimates every day about the spread of COVID-19. Last week, as stocks rallied, there was ambiguity about how many people would be impacted. We also saw a $2 trillion stimulus package and hundreds of billions of dollars in monetary policy pledged to backstop the economy. Still, as Detrick says, "The market's bounce last week may have been in anticipation of some of these more positive data points regarding the virus... While U.S. cases continue to climb, the more countries that reach their peak, the more clarity we gain into what that timing may look like for the United States."
Today we learned that there are over 200,000 cases now in the U.S. and the number of fatalities could reach 240,000. Investors did not like that news.  chart courtesy: allstarcharts.com
The Technical Point of View If you prefer to look at how markets may behave from a purely technical point of view, we like to look at All Star Charts' JC Parets for guidance. JC has been bearish for a couple of months back when stocks were making all-time highs. He noticed that while markets were topping records, many of the individual stocks inside the indexes were deteriorating. They had lost their momentum and were trading below their moving averages.
That deterioration was amplified as COVID-19 became a pandemic and the global economy was shut down. Stocks plunged deeply into over-sold territory and the percentage of stocks that are below their 200-day moving average rose to an 11-year low.
As JC sees it, markets don't recover until a much higher percentage of stocks get back to their 200-day moving average range, which is a sign of overall momentum.
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(chart courtesy YCHARTS)  Shares of Noble Energy rose by nearly 14% on the news that key executives in the energy sector are meeting with the President on Friday; other oil and/or natural gas production companies are also up, including Diamondback Energy (11%), ONEOK (nearly 9%), Devon Energy (nearly 9%), and Halliburton (over 7%). The Mosaic Co.'s stock price rose by more than 8% today.  Shares of apparel and footwear company VF fell by almost 10% as more and more retail outlets close down in response to the ongoing outbreak. For that same reason, the stock price of retailers such as Kohl's (nearly 9%) and Macy's (over 8%) are also down. Word of the Day In honor of Financial Literacy Month, which begins today, we are highlighting this critical term and celebrating it by putting out our Basic Guide to Financial Literacy.
We know you are financially literate because you are here with us, but you probably know some people, especially young people, who could use some old-fashioned financial education. Please share it with them.
Financial literacy is the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Financial literacy helps individuals become self-sufficient so that they can achieve financial stability.  image courtesy: NYSE.com
Today in History April 1st, 1930: April Fools! In one of the biggest "suckers' rallies" of all time, the total market value of New York Stock Exchange-listed companies hits $67.5 billion, up roughly 40% from its trough in the Great Crash of 1929. As the New York Fed cuts interest rates yet again to just 3.5% (down from 6% in 1929), investors turn bullish, and many leading stocks, like RCA and Columbia Graphophone, roughly double from their 1929 lows. By year-end, however, stocks are down more than 40% from here.
Barrie A. Wigmore, The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929-1933 (Greenwood Press, Westport, CT, and London, 1985), pp. 129, 137–140.
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Wednesday, April 1, 2020
Rough Start
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